Stock Wars: Cronos Group Vs. cbdMD

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two companies in the cannabidiol (CBD) space: Cronos Group Inc CRON and cbdMD Inc. YCBD.

The Case For Cronos Group: Founded in 2012 and headquartered in Toronto, Cronos Group promotes itself as “an innovative global cannabinoid company with international production and distribution across five continents,” adding that it has a corporate mission for “building disruptive intellectual property by advancing cannabis research, technology and product development.” Cronos has the financial backing of tobacco giant Altria Group Inc MO, which owns nearly 50% of the Canadian company.

The past six months have been busy for the company with activities including:

• Launch of the first U.S.-based campaign for its Lord Jones brand of hemp-derived CBD-infused products.

• An amended agreement with Ginkgo Bioworks Inc. that will enable the companies to accelerate the commercialization of cultured cannabinoids at scale.

• The acquisition of a 10.5% ownership stake in Chicago-based PharmaCann Inc.

• Launch of a new line of cannabis gummies by its Spinach brand.

• The appointment of former American Eagle Outfitters Inc AEO executive Bob Madore as its new chief financial officer.

For its most recent earnings report, the second-quarter data published on Aug. 6, Cronos Group reported $15.6 million in revenue, up from $9.8 million one year earlier. The company attributed this increase to its presence in the adult-use Canadian cannabis market and increased sales in the Israeli medical cannabis market.

But the company also reported a gross loss of $15.8 million, up from $2.9 million one year earlier. This decline was attributed to inventory write-downs in its international markets.

Cronos Group’s adjusted EBITDA loss of $49.8 million in the second quarter of 2021 represented a $22.8 million increase from the second quarter of 2020, and it ended the quarter with 15-cent earnings per share.

President and CEO Kurt Schmidt accentuated the future rather than the present in his second-quarter earnings call, declaring that the company has been “actively evaluating opportunities in the U.S. cannabis market as legalization efforts and the regulatory process continues to evolve. As more and more states legalize cannabis, and there is a clear momentum of federal legalization, we want to make sure we have a seat at the table and are well-positioned to capitalize on market opportunities at the appropriate time.”

Cronos Group opened for trading on Wednesday at $5.39, closer to its 52-week low of $5.17 than to its 52-week high of $15.83.

Related Link: The complete Stock Wars series

The Case For cbdMD: Founded in 2015 as Level Brands Inc., this Charlotte, North Carolina-based company has a product portfolio covering CBD tinctures, gummies, topicals, capsules, bath bombs, bath salts and sleep aids, as well as veterinarian-formulated products marketed under the Paw CBD brand name.

Not unlike Cronos Group, cbdMD has experienced a hectic past six months that included:

• Sponsorship agreements with this summer’s NOBULL CrossFit Games and next year’s Wodapalooza fitness festival.

• An animal health study with Colorado State University’s veterinary program.

• Plans to purchase the e-commerce marketplace DirectCBDOnline.com.

• A pact with IM Cannabis Corp IMCC to bring cbdMD’s products to Israel.

• The debut of a new line of CBD-infused drink mixes and a new line of full-spectrum products.

•  Research partnership with the University of Mississippi to identify novel cannabinoids.

In its most recent earnings report, the full-year, third-quarter data published on Aug. 14, cbdMD reported $10.5 million in net sales, down from $10.6 million one year earlier. It also reported a gross profit of $7.1 million, up from the previous year’s $6.8 million.

The company’s operating expenses for the quarter were $13.9 million, up from $8.2 million one year earlier, and its loss from operations increased to $6.7 million from the previous year’s $1.4 million; its earnings per share were 2 cents.

cbdMD also adjusted its guidance for the first quarter of 2022 from the original range of $15.5 million to $15.25 million to $14.9 million to $15.5 million, blaming production delays from vendors on new product launches for the adjustment.

“We continue to build upon our success and develop our science and infrastructure, which we believe will drive shareholder value and separate our brands from our competition,” said Chairman and co-CEO Martin Sumichrast.

cbdMD opened Wednesday’s trading session at $1.76, closer to its 52-week low of $1.70 than its 52-week high of $6.83.

The Verdict: Both companies are clearly focused on their market and checking the proverbial boxes when it comes to growth-oriented endeavors. Indeed, when viewing the vibrancy of their respective recent activities, one has to wonder why their revenue streams are not higher.

The big stumbling block, of course, is the U.S. market, and perhaps Cronos Group’s Schmidt is a bit too optimistic in regard to potential upcoming federal policy changes related to cannabis products — that subject is not a priority in the current Capitol Hill session or at the White House, and it is unlikely there will be significant shifts ahead of the 2022 midterm elections.

For this Stock Wars duel, the thumbs-up goes to cbdMD for two key reasons. First, it already has a firm place in the U.S. market that Cronos Group is trying to secure. Second, its partnerships with Colorado State University and the University of Mississippi are the most intriguing developments — by encouraging academic and scientific pursuits of CBD’s medicinal potential, cbdMD and its partner universities are not waiting for Capitol Hill legislators to get their act together on cannabis policy reform.

And speaking of cannabis, the Benzinga Cannabis Conference is being held Oct. 14-15 as a virtual presentation and an in-person event in New York City. Information on that event can be found at this link. 

And don't forget to check out the weekly "Cannabis Insider" show on Benzinga's YouTube channel:

Photo Erin Stone / Pixabay.